Asked by caswel mduduzi on May 21, 2024
Verified
Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to
A) Investment in Vallerio
B) Retained Earnings
C) Dividend Revenue
D) Dividend Receivables
Equity Method
An accounting technique used by firms to assess the profits earned by their investments in other companies, by recognizing income in proportion to their ownership percentage.
Cash Dividends
The allocation of a part of a corporation's profits, determined by its board of directors, to a group of its stockholders as cash.
- Identify the correct accounting approach for dividends and interest income from investments.
Verified Answer
KM
Komal mehboobMay 28, 2024
Final Answer :
A
Explanation :
Under the equity method, dividends received from an investee are accounted for as a return on the investment and decrease the carrying value of the investment. Therefore, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is recorded as a debit to Cash and a credit to Investment in Vallerio to reduce the carrying amount of the investment.
Learning Objectives
- Identify the correct accounting approach for dividends and interest income from investments.